Another good half
Treatt PLC (LONDON:TET) has reported another good set of results. The business is again on track to deliver a strong year of growth with new business wins, particularly in the beverages sector. Importantly, a decision has been made regarding the UK business, and there will be a full site relocation. We raise our FY15 EPS by 3.6%, and our DCF-derived fair value remains 190p, or 25% upside. We continue to view Treatt as a good-value opportunity in the highly-rated ingredients space.
Strong H1 results, forecasts raised
H1 sales were 7% ahead of our forecast, driven primarily by the beverages sector. This is an impressive result and leads us to raise our growth forecasts for the full year. H1 margins were lower than expected and operating profit was 5% below our forecast due to adverse raw material price movements and the timing of FX losses. These should partly reverse in H2. We have therefore raised our sales forecasts by 1% and our normalised PBT figures by 3.7% for FY15.
UK business decision enables next phase of growth
Treatt has outgrown its current site for the UK head office and manufacturing plant, and has been exploring options for some time. A decision has now been made to fully relocate in the Bury St Edmunds area, which management believes is the best option. The plans are still being finalised, but the overall cost is likely to be £15-20m. We already forecast £15m and we expect the additional £5m to be backend- loaded, so we have incorporated this into our 2017 estimates. We have updated our 2015 forecasts to reflect that any spend relating to the move is unlikely in 2015. This has improved our net debt forecast for FY15 and hence this flows through to a 6% increase in FY16e PBT as our finance charges are reduced.
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